(Reuters) — The U.S. government will part ways next month with
contractor CGI Federal over the troubled Obamacare enrollment
website, HealthCare.gov, which failed to work when it launched in
October for millions of Americans shopping for insurance, the
company said on Friday.

HealthCare.gov struggled with error messages and
slow speeds for weeks after its October 1 launch, creating a
political crisis for President Barack Obama, threatening the
roll-out of his signature healthcare law and emboldening its foes
among Republican lawmakers to call for its repeal.

CGI Federal, a subsidiary of CGI Group, built the website.

Its contract with the Centers for Medicare and Medicaid Services
(CMS), the agency responsible for the roll out of the Affordable
Care Act, was originally awarded in 2011 and is scheduled to end
February 28.

CMS would not confirm or deny CGI's departure. "We are working with
our contract partners to make a mutually agreed upon transition to
ensure that HealthCare.gov continues to operate smoothly for
consumers," a CMS spokeswoman said.

Obama has said the fiasco with HealthCare.gov has made him want to
overhaul the way the federal government buys technology services.
Critics say the system favors large, established contractors such as
CGI.

"At the end of the day, you have a company here that turned in
subpar and visibly high-profile work. I think that that's a fireable
offense," said Clay Johnson, chief executive officer of the
Department of Better Technology, and former Presidential Innovation
Fellow who has pushed for procurement reforms.

But the government appears poised to replace CGI with another large
contractor. The Washington Post, which first broke the news,
reported that Accenture will get a year-long contract for the
website worth about $90 million.

The government's dissatisfaction over the website's early crashes,
as well as aspects of the site that still do not work, prompted the
switch, the Post reported, citing a person familiar with the matter.

In an emailed statement, an Accenture spokesman said, "We are in
discussions with clients and prospective clients all the time — but
it is not appropriate to discuss new business opportunities we may
or may not be pursuing."

Johnson called the news "disappointing" and pointed to examples of
poorly managed Accenture contracts highlighted by the Project on
Government Oversight, a watchdog group.

For example, the company was publicly faulted by the California
Public Employees' Retirement System (Calpers) for costly delays and
other problems during a major IT overhaul, Johnson noted.

"We'll see how well they do, but Accenture doesn't have a strong
reputation of doing this stuff successfully," Johnson said.

CASEWORKER SYSTEM FOR TRICKY CASES

Officials from the administration and CGI had assured Congress over
the summer that HealthCare.gov would open on time and work as
intended.

At a September 10 hearing, CGI vice president Cheryl Campbell
testified that the company "is confident that it will deliver the
functionality that CMS has directed to enable qualified individuals
to begin enrolling in coverage when the initial enrollment period
begins on October 1."

Instead, the site failed to load, returned countless error messages,
and generally thwarted the attempts of millions of users to create
accounts, shop for coverage or enroll.

The administration eventually acknowledged that the fault lay in
hundreds of coding errors in the software CGI wrote, and the White
House brought in trusted Obama aide Jeffrey Zients to fix the site
by the end of November.

The improvements allowed more than 1.1 million people to shop for
and enroll in insurance on HealthCare.gov by the end of 2013, far
short of original hopes for early enrollment.

Although the site is vastly improved, technical glitches continue
to bedevil enrollment. There are about 13,000 people who are now in
a "caseworker system" to try to resolve particularly thorny
technical issues, White House spokesman Jay Carney told reporters.

The website still lacks several "back end" features, such as a
payment system for insurance companies.

The deadline for signing up for 2014 health insurance under the
Affordable Care Act is March 31, meaning the new contractor will
take over at a time when the government needs the site to handle
what it hopes will be a surge of last-minute sign-ups.

"With only limited days to enroll, the government is rolling the
dice, and the new vendor could be a savior or a bust if new problems
arise," said Scott Amey, general counsel for the Project on
Government Oversight.

But Peter Neupert, an operating partner with Health Evolution
Partners, a private equity firm that invests in health companies,
said he did not think the switch in contractors likely would affect
the website, which is now overseen by Kurt DelBene, a former
Microsoft executive.

"This appears to be about getting a new, hopefully better, team for
the next few cycles of iteration," Neupert said, noting he suspects
DelBene will have a "transition plan" to manage the change.

"A VERY, VERY GOOD THING"

This is at least the second contract switch for HealthCare.gov. In
November, CMS said it would not renew its contract with Verizon
Communication Inc's Terremark unit for computer servers hosting the
troubled website and instead award a contract for that work to
Hewlett-Packard Co.

Terremark's contract ends on March 30, the day before the sign-up
deadline. The Terremark servers suffered at least one outage last
fall that lasted for hours, making the website inaccessible.

Despite the bad publicity from the website woes, two analysts said
they did not expect CGI to take a significant hit from the end of
the HealthCare.gov contract.

"You could say what they're losing in effect is this $90 million,
12-month contract, which in the context of a $10 billion revenue
company is nothing," said one of the analysts, who declined to be
quoted by name.

U.S.-listed shares of CGI Group closed at $31.58, down 2.9 percent.

The second analyst said CGI might be better off to not be associated
with the highly politicized project. "We will never hear CGI's name
associated with Obamacare, which, frankly, is a very, very good
thing," the analyst said.